Uncertain U.S. poll results affect sentiment

By Oommen A. Ninan

MUMBAI, NOV. 26. The stock markets are likely to remain range- bound as market participants are not able to predict the direction. Though the valuations of many stocks are at attractive levels, investors prefer to keep away from a market which is powered by operators. The continuing uncertainty in U. S. elections is also affecting the mood on bourses.

``Nasdaq was 150 points up on last Friday. Moreover, Infosys, Satyam, Wipro and Silverline were on up side and most probably the market will open on Monday by 50 to 100 points higher from Friday's closing,'' said Mr. Shiv Damani, Vice-President, Renaissance Securities.

In the medium term, ``the holiday following thanksgiving and prior to Christmas will hopefully keep the markets stable as there will be hardly any activity,'' felt Mr. V. R. Srinivasan, Managing Director of R.K. Chari Stock Broking.

Earlier, Indian markets evinced hardly any interest in the U. S. elections - whether it is Democrat or Republican it hardly had any impact in India leave alone the stock markets. However, the scenario has totally changed today with even minor postings watched keenly by Indians. Such is the impact of the U. S., especially its economy, on India. On the face of it neither Mr. Al Gore nor Mr. George Bush should have any significant influence on Indian markets. With nothing much to talk about, the U. S. market is influenced two-third by politics and one-third by economy.

With uncertainty on the election of the new president, Wall Street and Nasdaq are looking for direction. Same is the case with the Indian market. The investors are in no hurry to take advantage of the valuations eventhough they quite agree that valuations appear attractive. Even the domestic funds are sitting on pile of cash and are in no mood to invest the same.

The operators are tired out and are liquidating their positions as they don't see any saviour in sight. In effect the markets have become too volatile scaring away the small investors who are otherwise keen to invest to average out the cost of holding.

Amid the whole process of American elections, certain measures initiated by the Government like, getting out of Maruti, albeit belated, diluting its stake in nationalised banks and exploring other options to augment revenues have gone unnoticed by the market. ``It is more or less certain that there will not be any year-end rally even in technology, media and telecommunications (TMT) stocks,'' said Mr. Srinivasan.

Both Infosys and Wipro are expected to announce some acquisitions which will hopefully stabilise the market. Thanks to the open offer by Dalmias for Gesco, a lot of promoters who are sitting on low valuation due to their own fault, are taking efforts towards value enhancement.

Raymonds is expected to come out with a buy back at Rs. 150 and the old war-horse of Indian stock market, Century Textiles is in high gear to restructure the company with a view to unlocking the shareholders' value. ``After a long time,'' said Mr. Srinivasan, ``managements are going in for a change to give value to shareholders in addition to value for themselves.''

The Bombay Stock Exchange 30-share Sensitive Index (Sensex) moved down by 37.50 at 3868.34 compared to the previous week' close of 3905.84. On the National Stock Exchange the S&P Nifty Index closed on last Friday at 1226.70 points, down by 8.35 points compared to the previous Friday's close of 1235.05.

In the last two months the Sensex was moving in a narrow range indicating a lull in the market as many counters are witnessing consolidation.

``The markets are trading in a narrow range for the past few days now,'' said Mr. Sunil Shah, Director of Evergreen Stock Broking. The last day of trading witnessed heavy demand for old economy stocks largely led by cement stocks. Steel counters also were crowded with buying in Tisco as well as SAIL saw strong upward momentum. Castrol moved up on rumours of a buy back in that share. Shares of L&T, Grasim and Gujarat Ambuja have seen strong institutional demand on expectations that the sector is due for better times. One share of the new economy which witnessed some FII buying was Digital Equipment. The company is a 51 per cent subsidiary of Compaq and almost 90 per cent of its sales turnover is from Compaq. Said Mr. Shah, ``a similar trend is likely to continue next week with technology counters being laggards and the old economy stocks stealing the show.''

Eventhough some expect that cement sector would do well, there is another school of thought. Cement demand increased by 3.9 per cent in the first half of the current fiscal compared to the same period last year.

On a regional basis, demand grew by 17.9 per cent in the east and 1.6 per cent in the west. However, the North experienced a negative growth of 1.5 per cent while South witnessed a marginal dip in demand of 0.7 per cent. A research report of Motilal Oswal Securities stated, ``We believe that cement demand will at best grow at 12 per cent in the second half of the current financial year and thereby lead to a 8.1 per cent growth in financial year 2001. Our cautious outlook is based on the belief that demand from rural housing is likely to take a severe hit in the current year due to unfavourable monsoon.''

The current year has witnessed the worst monsoon in eight years. Nearly one-third of the districts received deficient rainfall. The rains have completely eluded Gujarat, Madhya Pradesh and Rajasthan. The deficiency was as high as 44 per cent in Saurashtra and Kutch regions. On the other hand, certain parts of eastern West Bengal have had devastating floods in September. Besides the drop in kharif output, insufficient rains and depleted reservoir position which is the lowest in the decade are likely to have an adverse impact on construction activities.

``We expect retail demand to constitute about 80 per cent of the total cement demand in the country,'' stated the report. Water scarcity could lead to stalling of construction activities in Gujarat from January 2001 and affect cement demand which could affect Madhya Pradesh and Rajasthan as well.

The retail demand in the rain-deficient districts to fall by at least 10-15 per cent in the coming months. Finally urban housing is yet to pick up, as there is still a huge supply overhang. ``The institutional demand could grow at best by 20 per cent,'' the report stated, adding, ``the buoyancy in institutional demand will not be sufficient enough to fill the gap due to lack of buying from the retail end.''

With lower realisations and higher input cost, all of the cement companies have reported a dip in profits and margins in the current quarter over the same period last year. The dip has been more severe on Gujarat-based companies such as L&T and Gujarat Ambuja.

Margins for the cement division of L&T are down by 8 per cent (net of exceptional items). Ambuja has also reported a sharp fall of 6 per cent in margins. apart from rise in costs and lower realisations, drought in Gujarat has increased the lead distance for almost all the companies.

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